Tuesday, February 20, 2007

Sarbanes Oxley Continues to Take its Toll on the Good and the Honest

Shareholders and board members should prepare for record turnover among Chief Financial Officers (CFOs) in 2007, according to a new survey from executive services firm Tatum, LLC. Data from the survey suggests that compliance headaches such as Sarbanes-Oxley requirements and unrealistic demands from board members and CEOs will drive more than 2,300 CFOs from their positions in 2007.

"We are approaching an inflection point in the office of the CFO, and corporate America may soon find that creating shareholder value is impossible with what is quickly becoming an itinerant CFO," said Richard D'Amaro, Tatum Chairman and CEO. "Many CFOs are fired or resign not because they weren't a good match for the company when they were hired 20 months ago, but rather because the business has evolved so quickly that their capacity and capabilities are no longer an ideal match for the company."

A record 2,302 CFOs left their positions in 2006, according to independent research firm Liberum Research. A survey of more than 150 Tatum partners in the firm's Executive Practice last month indicates that 93 percent believe CFO turnover in 2007 will be as high or higher than 2006. Only seven percent of the respondents expect to see fewer CFO departures in 2007.

The survey also examined causes and solutions for the CFO turnover epidemic. Thirty-seven percent of those surveyed cited compliance and governance issues as the primary driver of turnover, which was followed closely by unreasonable expectations from board members and other stakeholders at 30 percent.

Yes, there's definitely been a huge move towards going private (see the surge in private equity funds), as well as of delisting to avoid the onerous regulations imposed by our bureaucrats. And of companies who do wish to become public, more and more of them are choosing to do so in London or Tokyo rather than in NY.

As I've mentioned before, every investor always had the choice to NOT invest in a company if he was unsure about its financials, reputation, etc. but now he no longer has that choice as the companies have left the public marketplace altogether. (In general I think it's fair to say that preventative/regulatory law always leads to a shrinking of an honest person's possible sphere of action.)

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Ideas cannot be fought except bymeans of better ideas. The battleconsists not of opposing, but ofexposing; not of denouncing but of disproving; not of evading,but of boldly proclaiming a full,consistent and radical alternative.
-- Ayn Rand